The Obama Administration has released its long awaited revisions to the salary basis test under the FLSA’s so-called white collar exemptions. These changes are long overdue. Before we get to the change, let’s review the current state of the law.
The FLSA requires employers to pay one and one-half an employee’s regular rate of pay for any hours they worked over forty during a work week. There are exceptions to this rule. The most prominent group of exceptions is the so-called white collar exemptions. If you are a professional, executive, or fall under the administrative exemption, then you may not be entitled to overtime.
To be sure, employers break the law all the time. In order to fall within the so called white collar exemptions, the employees must perform certain duties. Too many times, employers simply label employees as “salaried” when they don’t actually fall within the duties that permit them to be salaried.
However, before you even get to that issue, employers must pay a minimum salary to employees before they can avoid paying overtime. Currently, that minimum salary is $23,660 per year, or $455 per week. This is a rather draconian number. It is not indexed for inflation, and it has only been raised once since 1975. Therefore, an “executive” who makes the minimum salary under the FLSA and has a family of four would be below the poverty line.
The proposed new regulations bring employers (kicking and screaming) into the 21st Century. It raises the threshold from $23,660 per year to $50,440 per year. With the new regulations, an employer would not be permitted to classify an employee as exempt from overtime without paying them at least this minimum annual salary, which translates to $970 per week.
What will happen? My guess is that many employers will change most employees’ classification from salary to hourly. While these employees would not then get the benefit of the higher salary basis test, they would at least begin receiving one and one-half their regular rate of pay for overtime.
The problem with the old rules is highlighted by a case I had a couple years ago. My client was an employee who was a “store manager” of a convenience store. He was paid a salary. They did not pay him overtime. However, the company did go ahead and keep time records to show the number of hours he worked. As result of the long hours, it was undisputed that his effective hourly rate was around $4.00 per hour. This is simply unconscionable. The proposed new regulations are a step in the right direction. There is absolutely no reason that an employee should work fifty hours a week in America, be classified as an “executive” or “professional” employee, and have a family that lives below the poverty line.